It ain’t over ’till it’s over.
Once the Letter of Intent (LOI) for a business transaction has been double-signed by both buyer and seller, the real work begins. Unless the fat lady has sung, the deal could still fall apart like glass. One of the best ways to keep both parties focused on the task at hand and ensure botched due diligence doesn’t end it a deal blow-up is to ensure the due diligence is as short as possible.
I would liken due diligence to the decision to get married. First you date through the initial introductions and then you semi-commit with the LOI. The real marriage doesn’t occur until after you really sift through and make sure there are no skeletons in the closet. That’s what due diligence is all about: it’s the final father’s interview and consent before he gives his daughter away to a potential stranger. As the saying goes, “you go into dating with eyes wide open and enter marriage with eyes wide shut.” In other words, you should try very hard to find all the weaknesses you can before you consummate the deal because once you sign in blood, all bets are off.
In pushing a rapid due diligence, it doesn’t mean the key aspects of the deal aren’t reviewed and scrupulously examined. In fact, it often means the opposite. Forcing a rapid due diligence between both buyers and sellers forces all the proverbial cards on the table more quickly. If the seller is truly prepared to sell the business, then the buyer’s due diligence information request list should produce a very rapid onslaught of meaningful and important documents, providing all the necessary information to ensure the seller isn’t acquiring a lemon. Here are some of the most blaring reasons due diligence should be rapid:
When we refer to quick due diligence, most often the term length after a double-signed LOI would be between 30 and 60 days. 90 days is not ideal, but–from our personal experience–anything north of 90 days does not bode well for ensuring a high probability for deal closure. In fact, it drops closure probably down to less than 1/2 according to our own internal numbers. I understand that much of this depends on the size of the deal, ancillary terms and other provisions, but a generally good applicable rule is to make things go as reasonably fast as possible.